It's the darling of the newspaper industry at the moment because of its acquisition strategy, but a prospectus filed Friday with the Securities and Exchange Commission indicates GateHouse Media, owner of 87 daily newspapers, including The Carthage Press and the Neosho Daily News, and 268 weeklies, including the Neosho Post and Greenfield Vedette, is nearly $1.2 billion in debt:
We have a significant amount of indebtedness. At March 31, 2007, after giving pro forma effect to the 2007 Financings and the use of a portion of the net proceeds of this offering to repay the Bridge Loan, we would have had total indebtedness of $1.195 billion. After giving pro forma effect to the 2007 Financings and the use of a portion of the net proceeds of this offering to repay the Bridge Facility, our pro forma interest expense for the year ended December 31, 2006 would have been $83.5 million. Loans under the 2007 Credit Facility, as amended by the First Amendment, and the Bridge Facility are subject to a floating interest rate. An aggregate of $1.12 billion of term loans under our 2007 Credit Facility, as amended by the First Amendment, were hedged through the execution of interest rate hedge agreements of $300.0, $550.0 and $270.0 million, at fixed rates of 4.135%, 5.041% and 5.359%, through June 2012, September 2014 and July 2011, respectively.
Our substantial indebtedness could adversely affect our financial health in the following ways:
-a substantial portion of our cash flow from operations must be dedicated to the payment of interest on our outstanding indebtedness, thereby reducing the funds available to us for other purposes, including our ability to pay dividends on our common stock;
-our substantial degree of leverage could make us more vulnerable in the event of a downturn in general economic conditions or other adverse events in our business;
-our ability to obtain additional financing for working capital, capital expenditures, acquisitions or general corporate purposes may be impaired, limiting our ability to maintain the value of our assets and operations; and
-there would be a material and adverse effect on our business and financial condition if we are unable to service our indebtedness or obtain additional financing, as needed.
The prospectus was filed in conjunction with GateHouse's upcoming $368 million stock offering. The documents also indicated this week's sale of the Huntington, West Virginia Herald Dispatch to Champion Industries for $77 million was also part of an effort to pay down debt.
Risk factors noted in the prospectus also indicated continuing losses have been a problem for GateHouse:
We have a history of losses and may not be able to achieve or maintain profitable operations in the future.
We experienced losses from continuing operations of approximately $13.3 million on a pro forma basis in the first quarter of 2007 and $28.9 million and $14.1 million on a pro forma basis in 2006 and 2005, respectively, and $30.7 million in 2004. Pro forma loss from continuing operations in 2006 included lease abandonment charges of $0.3 million, postretirement benefits expense of $1.6 million and integration and reorganization costs of $6.7 million. Pro forma loss from continuing operations in 2005 included severance, lease abandonment charges and consulting expense paid to our prior management of $1.5 million in the aggregate. In addition, pro forma 2005 loss from continuing operations includes non-cash pension and post retirement benefits expense of $1.1 million, $0.8 million of consulting expense related to financial systems integration and $0.1 million in reorganization expense. Losses from continuing operations in 2004 included management fee expense of $1.5 million paid to our prior owner. Our results of operations in the future will depend on many factors, including our ability to execute our business strategy and realize efficiencies through our clustering strategy.